Finance problems. need @risk skill to analysis, no need to run the program. not a big work

1

Consider two risky assets with the following attributes:

Assume that the asset returns are each normally distributed and that the correlation between the assets’ returns is 0.4. The risk-free rate is 3%.

1. What is the optimal portfolio of the two risky assets?

2. Please explain in a concise sentence or two how you solved part (a).

A fellow analyst is also considering the optimal combination of the two assets and is assessing their proposed portfolio through simulation using @Risk. Specifically, your colleague is arguing that a portfolio that is 95% in asset 1 and 5% in asset 2 is more attractive than the optimal portfolio you found in part (a). Their evidence for this is the following simulation of the asset returns and the 95/5 portfolio returns. The simulation model and output are on the following page (spreadsheet template).

1. Based on your colleague’s simulation output, what is the expected return, standard deviation, and Sharpe ratio of the 95/5 portfolio?

1. Critically assess your colleague’s Monte Carlo model and proposed portfolio relative to what you proposed in part (a).

Q2 Based on the regressions below, determine the value per share (price) of the firm. Assume that the risk free rate is 3% and the market premium is 5%. Dividends are paid every year, and the last dividend paid of $2.50 per share was just paid. The next dividend is one year away. (Hint: It is always important to check for statistical significance.)